Measure Cash Flow

Written by Patricia Tunstall
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To measure cash flow requires a roundup of several aspects of a company's finances. A manager may require a daily, weekly, or monthly financial update for good cash flow management. There may be one specific area of concern, such as inventory control, but in order to determine the overall effect inventory is having on the company's progress, a cash flow analysis is needed.

Basically, cash flow management involves tracking the assets and liabilities of the company and determining increases and decreases in these areas. The cash flow section of a financial report is broken down into cash flow from operating, investing, and financing activities of the company. In turn, each of these parts is detailed as to the subject areas that are properly included.

A Company's Financial Activities

Operating activities can also be labeled profit-making activities, because summarized in this section are the cash inflows from sales and the cash outflows for expenses. The investments section details cash inflows from selling old investments, such as machinery, and the cash outflows from purchasing new investments, for instance, buildings.

The financing activities of the business revolve around cash inflows as a result of borrowing money, for example, and cash outflows that result from paying debts. Each of the three sections of a cash flow statement can be summarized independently, but an overall picture of the financial strengths and weaknesses of a business requires that all sections be completed. In order to measure cash flow, then, an accountant must have complete financial records that are up-to-date.


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